WEAKNESSES

Risk assessment

Growth still highly reliant on oil

Growth continued to slow in 2016 as oil production declined and the government made large cuts to expenditure to try and bring the budget deficit under control. The Congolese economy is nevertheless expected to recover in 2017 with the bringing on stream of a major oil field and an upturn in public investment.

Congo has abundant natural resources (oil, iron ore, as well as potash, phosphates and wood) and is strategically located in Central Africa (deep-water port at Pointe-Noire). The economy however is still dominated by oil, despite the decline in the contribution from this sector, accounting for 40% of GDP, 38% of budget receipts and 74% of exports. Notwithstanding recent discoveries, its oil reserves will continue to be depleted, with prices likely to remain relatively low. This further highlights the need for the country to diversify its economy. In this context, a few years ago the Government launched a major public investment program. The country however continues to suffer the consequences of its infrastructure deficiencies. In addition, progress in terms of reducing poverty and inequality remains limited and the business climate is still difficult. Investors continue to worry about the problems faced in dealing with the tax authorities and by obstacles to cross border trade.

Inflation, driven by imported foodstuff costs and logistical limitations, is now in excess of the CEMAC target (3%).

Twin deficits being reduced

The continuing fall in oil revenues and the rise in public sector wages ahead of the Presidential election in March 2016 impacted on the budget. However, despite its rapid deterioration in 2015, the public deficit was brought down to a more acceptable level in 2016 thanks to a sharp reduction in public investment. The upturn in oil output and the slight recovery in crude oil prices should help produce a further improvement in the budgetary situation in 2017. This should also apply to the external accounts.

The level of external public debt has risen significantly since the debt relief granted in 2010 as part of the HIPC/MDR initiatives, as a result of loans contracted with China. The public debt ratio at the end of 2015 even exceeded the CEMAC convergence criteria (70% of GDP). The risk of overindebtedness has increased in the context of falling oil prices and the 2015 depreciation of the CFA franc against the dollar. A temporary delay in July 2016 in paying the country’s only euro-bond has highlighted the poor level of debt management, even if it does not reflect short-term liquidity problems. The country has sizeable budget reserves held with the Bank of Central African States (9% of GDP at mid-2016). However, given the limited availability of finance, the government continues to draw on these reserves, which will eventually run out.

The outgoing President retains his hold on power

The new constitution to allow President Sassou-Nguesso to run for a third term of office in 2016 was approved by referendum in October 2015. The outgoing President, who has held the office for more than thirty years (in two distinct periods), was re-elected for five years in the first round of the March 2016 presidential election. The polls’ results have been challenged by the opposition, with the voting taking place in a tense climate. This has also simply postponed the issue of the succession to a later date.

Whilst contested internally and only chilly welcomed by the international community, the Head of State knows he can rely on China, the country’s leading trading partner and funder. Some ten agreements were signed in June 2016 between the two countries covering finance, infrastructure and agriculture. Relations with the neighbouring Democratic Republic of the Congo however remain tense because of the increasing political instability within this country. In addition, there has also been renewed tensions, since April 2016, in the Pool region, adjoining Brazzaville, between security forces and former Ninja rebels, supporters of Pasteur Ntumi.